Britain's credit rating could be cut if the euro crisis worsens, a major
financial agency warned last night.

Moody’s, one of the world’s largest rating firms, said in its annual credit report that, although the AAA rating was currently secure, it was based on the economy not deteriorating further or the Government being forced to bail out the banks again.

George Osborne, the Chancellor, has repeatedly stressed the importance of retaining the rating, which determines the rate at which Britain can borrow money on the international financial markets.

France is currently facing a downgrading and last week senior French politicians demanded that Britain’s rating should also be reviewed.

In a statement, Moody’s Investors Service said: “The currently stable outlook on the UK government’s AAA rating depends in part on the assumption that the government will stay on track with its fiscal consolidation programme.

“However, any additional weakening in the macro-economic outlook or a need to support the banking system could temporarily set back the government’s fiscal consolidation efforts. As a result, the outlook on the rating is likely to be sensitive to future developments in the euro area’s debt crisis, even though the UK is not a member of the monetary union.”

Moody’s recently said it would “revisit” its analysis of ratings across the eurozone as a result of the recent turmoil.

Last night, it said: “Although non-euro area sovereigns within the EU — like the UK — can be expected to be somewhat cushioned from both the euro area sovereign debt crisis and its rating consequences, Moody’s says that no EU sovereign rating can be considered immune to this crisis.”

Although Moody’s said that Britain faced “formidable and rising challenges”, it praised the Government’s approach to cutting debts and the competitive nature of this country’s economy.

The warning came after the head of France’s financial regulator admitted yesterday that it would be “a miracle” if France kept its triple-A credit rating.

“Keeping it would need a miracle, but I want to believe it can happen,” Jean-Pierre Jouyet said.

It also emerged last night that Angela Merkel, the German Chancellor, has left for a fortnight-long holiday, leaving little prospect for the euro crisis to be resolved this year.

The German leader does not have any further public engagements for more than two weeks and her staff said yesterday that she was now on a winter break.

Last year, Mrs Merkel went cross-country skiing in the Swiss Alps but her aides refused to disclose details of her plans for this year.

Earlier this week, European leaders announced they would provide an additional €150 billion (£125 billion) to the International Monetary Fund – less than the €200 billion they had hoped to raise.

Britain has refused to provide additional funding for a eurozone bail-out. But negotiations over the possibility of extra IMF funds are now expected to continue among world leaders and finance ministers at meetings in Mexico in the new year.

A spokesman for the French government said yesterday they were confident that Britain would take part in IMF action co-ordinated by the G20 group of the world’s wealthiest nations.

In a speech in Nigeria yesterday, Christine Lagarde, the managing director of the IMF said the eurozone needed “special attention”.